Question

Equity Share Capital ₹ 20,00,000; Reserve ₹ 5,00,000; Debentures ₹ 10,00,000; Current Liabilities ₹ 8,00,000. Debt-equity ratio will be ______.

Options

• .4 : 1

• .32 : 1

• .72 : 1

• .5 : 1

Answer 1

Equity Share Capital ₹ 20,00,000; Reserve ₹ 5,00,000; Debentures ₹ 10,00,000; Current Liabilities ₹ 8,00,000. Debt-equity ratio will be .4 : 1.

Explanation:

Debt-Equity Ratio = `"Long term Debts"/"Shareholder’s Funds"`

Long term Debts = Debentures = ₹ 10,00,000

Shareholder’s Funds = Equity Share Capital + Reserve

= 20,00,000 + 5,00,000

= ₹ 25,00,000

Debt-Equity Ratio = `(10,00,000)/(25,00,000)`

= .4 : 1